How do reporting standards (Form 990, charity evaluators) impact overhead comparisons?
Executive summary
Form 990 is the public tax return that most U.S. charities must file and it supplies the raw numbers charity evaluators like Charity Navigator, GuideStar (Candid) and ProPublica’s databases use to produce expense ratios, executive pay and other metrics [1] [2] [3]. But reliance on Form 990 line-items produces distortions: many charities historically omitted fundraising detail and Form 990 does not fully describe program impact or activities — problems noted in Charity Navigator’s early reviews and by outside critics such as GiveWell [4] [5].
1. Numbers don’t tell the whole mission — why Form 990 is the backbone of comparison
Form 990 is the legally required, public annual return that most 501(c) organizations file and states, funders and researchers use it to check revenue, expenses, assets and governance details; states also rely on it for oversight [1] [2] [6]. Databases and evaluators ingest 990s — Candid/GuideStar and ProPublica explicitly collect and surface those filings to let donors and grantmakers compare charities [3] [1] [7]. That makes Form 990 the practical backbone for overhead comparisons because it’s the most consistent, accessible dataset available [3] [1].
2. Line-item choices create apples-to-oranges overhead ratios
Form 990 design and how organizations classify costs shape expense ratios. Charity Navigator builds financial metrics from parts VIII–X of the 990, but those numbers depend on how charities allocate spending between program, management and fundraising lines — and those allocations vary by accounting choices and mission structure [8]. ProPublica and others note that the IRS extracts only a subset of what is on full 990s in public datasets, further complicating direct comparisons [1].
3. Missing or uneven reporting has historically warped comparisons
Charity Navigator’s own history shows the problem: in 1999 a majority of charities seeking public donations did not report fundraising expenditures, undermining simple overhead comparisons [4]. That illustrates a persistent limitation: if organizations omit schedules or file different return types (990 vs. 990‑EZ), the visible ratios will not be comparable across the sector [1] [9].
4. Evaluators apply rules and thresholds — introducing their own framing
Charity Navigator does not simply publish raw 990 ratios; it transforms 990 data into scores and thresholds (for example a program expense percentage target now set at 70% under newer “Encompass” methodology) and smooths year-to-year volatility with three‑year averages [8]. Those methodological choices change which organizations “pass” or “fail” on overhead and shift donor behavior — an effect Charity Navigator itself and a 2025 study found: ratings shape giving [4].
5. Impact vs. inputs: evaluators and critics disagree on emphasis
Critics including journalist Nicholas Kristof and evaluators like GiveWell argue that emphasis on low overhead (inputs) can discourage necessary administrative investment and fails to measure actual outcomes; GiveWell has said Form 990 lacks sufficient information on what charities actually do or where they operate [4] [5]. Charity Navigator has responded by expanding beyond pure expense ratios toward accountability, transparency and — more recently — outcome-oriented measures through acquisitions and methodological changes [4] [8].
6. Practical consequences for donors and charities
Donors who rely only on overhead percentages reported or scored by evaluators are responding to processed 990 data rather than direct evidence of effectiveness; Charity Navigator’s prominence means its thresholds influence giving patterns [4] [8]. For charities, careful 990 preparation and additional disclosure on GuideStar/Candid can materially change public perception and fundraising prospects because platforms surface both 990 data and organization-provided updates [10] [3] [7].
7. What reporting reform or due-diligence looks like in current sources
Available sources document efforts to improve the baseline: Charity Navigator created digitized 990 parsing and adjusted its scoring [8] [5], Candid/GuideStar offer direct, updated nonprofit profiles and claim a larger pool of directly contributed data than IRS filings alone [3] [7], and the IRS provides guidance and schedules to standardize reporting [11] [12]. But none of the provided sources say a single fix has eliminated comparability problems — instead evaluators and data platforms layer methodologies on top of imperfect filings [8] [1].
8. How to read overhead numbers responsibly (based on cited reporting)
Use 990-derived ratios as one indicator, not proof: check whether a charity files the full 990 or 990‑EZ, review multiple years (evaluators often use three‑year averages), look for direct program outcome information beyond the 990, and consult platforms that combine 990 data with organization‑provided updates [8] [3] [1]. Sources do not mention a single definitive metric that replaces overhead ratios; instead they show a mix of better disclosure, evaluator judgment and donor due diligence is the current practice [8] [3] [1].
Limitations and note on sources: this analysis draws only on the provided reporting about Form 990, Charity Navigator, GuideStar/Candid and ProPublica; available sources do not mention other evaluator methods or legislative proposals beyond what is cited here [4] [8] [3] [1] [11].